The new disregarded payment loss rules could create material, adverse tax consequences for taxpayers that make check-the-box elections for foreign disregarded entities within a US consolidated group (or otherwise form new foreign disregarded entities). As a result, taxpayers should assess their exposure under the disregarded payment loss rules before making any such elections or forming such entities within the US consolidated group.

On 11 December 2023, Treasury and the IRS issued Notice 2023-80 (the “Notice”), which represents the US government’s first attempt to address the US federal income tax implications of Pillar Two. The Notice provides guidance on certain foreign tax credit and dual consolidated loss issues that arise in the context of Pillar Two. The Notice also extends the period of relief for the 2021 final foreign tax credit regulations until more guidance is issued.